CLF-2013.9.30 10-Q
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2013
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             .
Commission File Number: 1-8944

CLIFFS NATURAL RESOURCES INC.
(Exact Name of Registrant as Specified in Its Charter)
Ohio
 
34-1464672
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
200 Public Square, Cleveland, Ohio
 
44114-2315
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (216) 694-5700
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES  x                                         NO  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES  x                                         NO  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x             Accelerated filer  o    Non-accelerated filer   o    Smaller reporting company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES  o                                         NO  x
The number of shares outstanding of the registrant’s common shares, par value $0.125 per share, was 153,124,101 as of October 21, 2013.


Table of Contents

TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
Page Number
 
 
 
 
 
 
DEFINITIONS
 
 
 
 
 
 
PART I - FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
Statements of Unaudited Condensed Consolidated Operations Three and Nine Months Ended September 30, 2013 and 2012
 
 
 
 
Statements of Unaudited Condensed Consolidated Comprehensive Income for the Three and Nine Months Ended September 30, 2013 and 2012
 
 
 
 
Statements of Unaudited Condensed Consolidated Financial Position as of September 30, 2013 and December 31, 2012
 
 
 
 
Statements of Unaudited Condensed Consolidated Cash Flows for the Nine Months Ended September 30, 2013 and 2012
 
 
 
 
Notes to Unaudited Condensed Consolidated Financial Statements
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
Item 4.
Controls and Procedures
 
 
 
 
 
 
PART II - OTHER INFORMATION
 
 
 
 
Item 1A.
Risk Factors
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 4.
Mine Safety Disclosures
 
 
 
Item 6.
Exhibits
 
 
 
 
 
 
 
 
Signatures
 
 
 
 
 
 

Table of Contents

DEFINITIONS
The following abbreviations or acronyms are used in the text. References in this report to the “Company,” “we,” “us,” “our” and “Cliffs” are to Cliffs Natural Resources Inc. and subsidiaries, collectively. References to “A$” or “AUD” refer to Australian currency, “C$” to Canadian currency and “$” to United States currency.
Abbreviation or acronym
 
Term
Amapá
 
Anglo Ferrous Amapá Mineração Ltda. and Anglo Ferrous Logística Amapá Ltda.
ArcelorMittal
 
ArcelorMittal (as the parent company of ArcelorMittal Mines Canada, ArcelorMittal USA and ArcelorMittal Dofasco, as well as, many other subsidiaries)
ArcelorMittal USA
 
ArcelorMittal USA LLC (including many of its North American affiliates, subsidiaries and representatives. References to ArcelorMittal USA comprise all such relationships unless a specific ArcelorMittal USA entity is referenced)
ASC
 
Accounting Standards Codification
Bloom Lake
 
The Bloom Lake Iron Ore Mine Limited Partnership
Chromite Project
 
Cliffs Chromite Ontario Inc.
CLCC
 
Cliffs Logan County Coal LLC
Cockatoo Island
 
Cockatoo Island Joint Venture
DD&A
 
Depreciation, depletion and amortization
Dodd-Frank Act
 
Dodd-Frank Wall Street Reform and Consumer Protection Act
EBITDA
 
Earnings before interest, taxes, depreciation and amortization
Empire
 
Empire Iron Mining Partnership
EPS
 
Earnings per share
Exchange Act
 
Securities Exchange Act of 1934, as amended
FASB
 
Financial Accounting Standards Board
Fe
 
Iron
FMSH Act
 
U.S. Federal Mine Safety and Health Act 1977, as amended
GAAP
 
Accounting principles generally accepted in the United States
Hibbing
 
Hibbing Taconite Company
ICE Plan
 
Amended and Restated Cliffs 2007 Incentive Equity Plan, as amended
Ispat
 
Ispat Inland Steel Company
Koolyanobbing
 
Collective term for the operating deposits at Koolyanobbing, Mount Jackson and Windarling
LIBOR
 
London Interbank Offered Rate
LTVSMC
 
LTV Steel Mining Company
MMBtu
 
Million British Thermal Units
Moody's
 
Moody's Investors Service, Inc., a subsidiary of Moody's Corporation, and its successors
MRRT
 
Minerals Resource Rent Tax (Australia)
MSHA
 
U.S. Mine Safety and Health Administration
n/m
 
Not meaningful
Northshore
 
Northshore Mining Company
Oak Grove
 
Oak Grove Resources, LLC
OCI
 
Other comprehensive income (loss)
OPEB
 
Other postretirement benefits
Pinnacle
 
Pinnacle Mining Company, LLC
Pluton Resources
 
Pluton Resources Limited
S&P
 
Standard & Poor's Rating Services, a division of Standard & Poor's Financial Services LLC, a subsidiary of The McGraw-Hill Companies, Inc., and its successors
SEC
 
U.S. Securities and Exchange Commission
Severstal
 
Severstal Dearborn, LLC
Sonoma
 
Sonoma Coal Project
Substitute Rating Agency
 
A "nationally recognized statistical rating organization" within the meaning of Section 3 (a)(62) of the Exchange Act, selected by us (as certified by a certificate of officers confirming the decision of our board of directors) as a replacement agency of Moody's or S&P, or both of them, as the case may be
Tilden
 
Tilden Mining Company
TSR
 
Total Shareholder Return
United Taconite
 
United Taconite LLC
U.S.
 
United States of America
U.S. Steel Canada
 
United States Steel Corporation
 
 
 

1
Table of Contents

Abbreviation or acronym
 
Term
VNQDC Plan
 
2005 Voluntary NonQualified Deferred Compensation Plan
VWAP
 
Volume Weighted Average Price
Wabush
 
Wabush Mines Joint Venture
WISCO
 
Wugang Canada Resources Investment Limited, a subsidiary of Wuhan Iron and Steel (Group) Corporation
2012 Equity Plan
 
Cliffs Natural Resources Inc. 2012 Incentive Equity Plan

2
Table of Contents

PART I
Item 1.
Financial Statements
Statements of Unaudited Condensed Consolidated Operations
Cliffs Natural Resources Inc. and Subsidiaries
 
(In Millions, Except Per Share Amounts)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2013
 
2012
 
2013
 
2012
REVENUES FROM PRODUCT SALES AND SERVICES
 
 
 
 
 
 
 
Product
$
1,454.6

 
$
1,447.9

 
$
3,928.8

 
$
4,096.6

Freight and venture partners' cost reimbursements
92.0

 
97.0

 
246.8

 
240.2


1,546.6

 
1,544.9

 
4,175.6

 
4,336.8

COST OF GOODS SOLD AND OPERATING EXPENSES
(1,197.9
)
 
(1,346.6
)
 
(3,320.8
)
 
(3,403.2
)
SALES MARGIN
348.7

 
198.3

 
854.8

 
933.6

OTHER OPERATING INCOME (EXPENSE)
 
 
 
 
 
 
 
Selling, general and administrative expenses
(70.6
)
 
(63.9
)
 
(167.9
)
 
(202.6
)
Exploration costs
(10.6
)
 
(45.6
)
 
(45.9
)
 
(95.2
)
Miscellaneous - net
(43.5
)
 
(12.5
)
 
13.3

 
25.5

 
(124.7
)
 
(122.0
)
 
(200.5
)
 
(272.3
)
OPERATING INCOME
224.0

 
76.3

 
654.3

 
661.3

OTHER INCOME (EXPENSE)
 
 
 
 
 
 
 
Interest expense, net
(44.7
)
 
(45.3
)
 
(134.5
)
 
(135.7
)
Other non-operating income (expense)
(1.2
)
 
1.4

 
(2.9
)
 
1.0

 
(45.9
)
 
(43.9
)
 
(137.4
)
 
(134.7
)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY LOSS FROM VENTURES
178.1

 
32.4

 
516.9

 
526.6

INCOME TAX BENEFIT (EXPENSE)
(65.7
)
 
64.0

 
(69.0
)
 
235.2

EQUITY LOSS FROM VENTURES, net of tax
(0.5
)
 
(15.3
)
 
(73.9
)
 
(22.7
)
INCOME FROM CONTINUING OPERATIONS
111.9

 
81.1

 
374.0

 
739.1

INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of tax
2.0

 
(2.7
)
 
2.0

 
5.1

NET INCOME
113.9

 
78.4

 
376.0

 
744.2

LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTEREST
3.3

 
6.7

 
(5.8
)
 
(25.2
)
NET INCOME ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
$
117.2

 
$
85.1

 
$
370.2

 
$
719.0

PREFERRED STOCK DIVIDENDS
(12.9
)
 
—

 
(35.9
)
 
—

NET INCOME ATTRIBUTABLE TO CLIFFS COMMON SHAREHOLDERS
$
104.3

 
$
85.1

 
$
334.3

 
$
719.0

 
 
 
 
 
 
 
 
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS - BASIC
 
 
 
 
 
 
 
Continuing operations
$
0.67

 
$
0.62

 
$
2.20

 
$
5.02

Discontinued operations
0.01

 
(0.02
)
 
0.01

 
0.04


$
0.68

 
$
0.60

 
$
2.21

 
$
5.06

EARNINGS PER COMMON SHARE ATTRIBUTABLE TO CLIFFS SHAREHOLDERS - DILUTED
 
 
 
 
 
 
 
Continuing operations
$
0.65

 
$
0.61

 
$
2.13

 
$
5.00

Discontinued operations
0.01

 
(0.02
)
 
0.01

 
0.04

 
$
0.66

 
$
0.59

 
$
2.14

 
$
5.04

AVERAGE NUMBER OF SHARES (IN THOUSANDS)
 
 
 
 
 
 
 
Basic
153,029

 
142,396

 
151,288

 
142,332

Diluted
178,459

 
142,895

 
172,624

 
142,780

CASH DIVIDENDS DECLARED PER DEPOSITARY SHARE
$
0.44

 
$
—

 
$
1.22

 
$
—

CASH DIVIDENDS DECLARED PER COMMON SHARE
$
0.15

 
$
0.63

 
$
0.45

 
$
1.54

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3
Table of Contents

Statements of Unaudited Condensed Consolidated Comprehensive Income
Cliffs Natural Resources Inc. and Subsidiaries
 
(In Millions)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2013
 
2012
 
2013
 
2012
NET INCOME ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
$
117.2

 
$
85.1

 
$
370.2

 
$
719.0

OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
 
 
 
 
Pension and OPEB liability, net of tax
6.6

 
7.6

 
20.8

 
20.9

Unrealized net gain (loss) on marketable securities, net of tax
4.4

 
(0.1
)
 
7.6

 
(0.6
)
Unrealized net gain (loss) on foreign currency translation
22.8

 
18.6

 
(124.9
)
 
12.2

Unrealized net gain (loss) on derivative financial instruments, net of tax
28.3

 
14.2

 
(23.1
)
 
13.6

OTHER COMPREHENSIVE INCOME (LOSS)
62.1

 
40.3

 
(119.6
)
 
46.1

OTHER COMPREHENSIVE INCOME ATTRIBUTABLE TO THE NONCONTROLLING INTEREST
(0.9
)
 
(1.5
)
 
(3.2
)
 
(4.5
)
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO CLIFFS SHAREHOLDERS
$
178.4

 
$
123.9

 
$
247.4

 
$
760.6

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4
Table of Contents

Statements of Unaudited Condensed Consolidated Financial Position
Cliffs Natural Resources Inc. and Subsidiaries
 
(In Millions)
 
September 30,
2013
 
December 31, 2012
ASSETS
 
 
 
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
298.8

 
$
195.2

Accounts receivable, net
291.7

 
329.0

Inventories
438.4

 
436.5

Supplies and other inventories
257.4

 
289.1

Derivative assets
72.7

 
78.6

Other current assets
310.6

 
321.6

TOTAL CURRENT ASSETS
1,669.6

 
1,650.0

PROPERTY, PLANT AND EQUIPMENT, NET
11,354.8

 
11,207.3

OTHER ASSETS
 
 
 
Investments in ventures
71.5

 
135.8

Goodwill
158.6

 
167.4

Intangible assets, net
110.8

 
129.0

Deferred income taxes
5.3

 
91.8

Other non-current assets
196.1

 
193.6

TOTAL OTHER ASSETS
542.3

 
717.6

TOTAL ASSETS
$
13,566.7

 
$
13,574.9

(continued)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5
Table of Contents

Statements of Unaudited Condensed Consolidated Financial Position
Cliffs Natural Resources Inc. and Subsidiaries - (Continued)
 
(In Millions)
 
September 30,
2013
 
December 31, 2012
LIABILITIES
 
 
 
CURRENT LIABILITIES
 
 
 
Accounts payable
$
350.8

 
$
555.5

Accrued expenses
404.7

 
442.6

Income taxes payable
57.3

 
28.3

Current portion of debt
7.9

 
94.1

Deferred revenue
15.1

 
35.9

Derivative liabilities
36.1

 
13.2

Other current liabilities
188.6

 
211.9

TOTAL CURRENT LIABILITIES
1,060.5

 
1,381.5

PENSION AND POSTEMPLOYMENT BENEFIT LIABILITIES
556.1

 
618.3

ENVIRONMENTAL AND MINE CLOSURE OBLIGATIONS
299.5

 
252.8

DEFERRED INCOME TAXES
1,000.5

 
1,108.1

LONG-TERM DEBT
3,319.6

 
3,960.7

OTHER LIABILITIES
395.9

 
492.6

TOTAL LIABILITIES
6,632.1

 
7,814.0

COMMITMENTS AND CONTINGENCIES (SEE NOTE 19)

 

EQUITY
 
 
 
CLIFFS SHAREHOLDERS' EQUITY
 
 
 
Preferred Stock - no par value
 
 
 
Class A - 3,000,000 shares authorized
 
 
 
7% Series A Mandatory Convertible, Class A, no par value and $1,000 per share liquidation preference (See Note 15)
 
 
 
Issued and Outstanding - 731,250 shares (2012 - none)
731.3

 
—

Class B - 4,000,000 shares authorized
 
 
 
Common Shares - par value $0.125 per share
 
 
 
Authorized - 400,000,000 shares (2012 - 400,000,000 shares);
 
 
 
Issued - 159,545,469 shares (2012 - 149,195,469 shares);
 
 
 
Outstanding - 153,124,449 shares (2012 - 142,495,902 shares)
19.8

 
18.5

Capital in excess of par value of shares
2,029.8

 
1,774.7

Retained earnings
3,483.3

 
3,217.7

Cost of 6,421,264 common shares in treasury (2012 - 6,699,567 shares)
(306.1
)
 
(322.6
)
Accumulated other comprehensive loss
(178.4
)
 
(55.6
)
TOTAL CLIFFS SHAREHOLDERS' EQUITY
5,779.7

 
4,632.7

NONCONTROLLING INTEREST
1,154.9

 
1,128.2

TOTAL EQUITY
6,934.6

 
5,760.9

TOTAL LIABILITIES AND EQUITY
$
13,566.7

 
$
13,574.9

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Table of Contents

Statements of Unaudited Condensed Consolidated Cash Flows
Cliffs Natural Resources Inc. and Subsidiaries
 
(In Millions)
 
Nine Months Ended
September 30,
 
2013
 
2012
OPERATING ACTIVITIES
 
 
 
Net income
$
376.0

 
$
744.2

Adjustments to reconcile net income to net cash provided (used) by operating activities:
 
 
 
Depreciation, depletion and amortization
438.0

 
382.3

Derivatives and currency hedges
0.4

 
12.0

Equity loss in ventures (net of tax)
73.9

 
22.7

Deferred income taxes
(39.5
)
 
(352.5
)
Changes in deferred revenue and below-market sales contracts
(52.2
)
 
(36.2
)
Other
(18.3
)
 
(55.7
)
Changes in operating assets and liabilities:
 
 
 
Receivables and other assets
36.2

 
(118.6
)
Product inventories
(10.8
)
 
(70.4
)
Payables and accrued expenses
(117.8
)
 
(252.3
)
Net cash provided by operating activities
685.9

 
275.5

INVESTING ACTIVITIES
 
 
 
Purchase of property, plant and equipment
(742.2
)
 
(793.6
)
Other investing activities
7.8

 
8.9

Net cash used by investing activities
(734.4
)
 
(784.7
)
FINANCING ACTIVITIES
 
 
 
Net proceeds from issuance of Series A, Mandatory Convertible Preferred Stock, Class A
709.4

 
—

Net proceeds from issuance of common shares
285.3

 
—

Repayment of term loan
(847.1
)
 
(49.9
)
Borrowings under credit facilities
567.0

 
670.0

Repayment under credit facilities
(512.0
)
 
(420.0
)
Proceeds from equipment loan
62.1

 
—

Contributions by joint ventures, net
17.7

 
68.8

Common stock dividends
(68.8
)
 
(217.8
)
Preferred stock dividends
(23.0
)
 
—

Other financing activities
(28.6
)
 
(23.9
)
Net cash provided by financing activities
162.0

 
27.2

EFFECT OF EXCHANGE RATE CHANGES ON CASH
(9.9
)
 
(0.1
)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
103.6

 
(482.1
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
195.2

 
521.6

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
298.8

 
$
39.5

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
See NOTE 20 - CASH FLOW INFORMATION.

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Table of Contents

Cliffs Natural Resources Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with SEC rules and regulations and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments) necessary to present fairly, the financial position, results of operations, comprehensive income and cash flows for the periods presented. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management bases its estimates on various assumptions and historical experience, which are believed to be reasonable; however, due to the inherent nature of estimates, actual results may differ significantly due to changed conditions or assumptions. The results of operations for the three and nine months ended September 30, 2013 are not necessarily indicative of results to be expected for the year ended December 31, 2013 or any other future period. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2012.
Basis of Consolidation
The unaudited condensed consolidated financial statements include our accounts and the accounts of our wholly owned and majority-owned subsidiaries, including the following operations:
Name
 
Location
 
Ownership Interest
 
Operation
Northshore
 
Minnesota
 
100.0%
 
Iron Ore
United Taconite
 
Minnesota
 
100.0%
 
Iron Ore
Wabush
 
Newfoundland and Labrador/ Quebec, Canada
 
100.0%
 
Iron Ore
Bloom Lake
 
Quebec, Canada
 
75.0%
 
Iron Ore
Tilden
 
Michigan
 
85.0%
 
Iron Ore
Empire
 
Michigan
 
79.0%
 
Iron Ore
Koolyanobbing
 
Western Australia
 
100.0%
 
Iron Ore
Pinnacle
 
West Virginia
 
100.0%
 
Coal
Oak Grove
 
Alabama
 
100.0%
 
Coal
CLCC
 
West Virginia
 
100.0%
 
Coal
Intercompany transactions and balances are eliminated upon consolidation.
Also included in our consolidated results are Cliffs Chromite Ontario Inc. and Cliffs Chromite Far North Inc. Cliffs Chromite Ontario Inc. holds a 100 percent interest in each of the Black Label and Black Thor chromite deposits and, together with Cliffs Chromite Far North Inc., a 70 percent interest in the Big Daddy chromite deposit, all located in northern Ontario, Canada.

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Table of Contents

Equity Method Investments
Investments in unconsolidated ventures that we have the ability to exercise significant influence over, but not control, are accounted for under the equity method. The following table presents the detail of our investments in unconsolidated ventures and where those investments are classified in the Statements of Unaudited Condensed Consolidated Financial Position as of September 30, 2013 and December 31, 2012. Parentheses indicate a net liability.
 
 
 
 
 
 
 
 
(In Millions)
Investment
 
Classification
 
Accounting
Method
 
Interest
Percentage
 
September 30,
2013
 
December 31, 2012
Amapá
 
Investments in ventures
 
Equity Method
 
30
 
$
29.4

 
$
101.9

Cockatoo
 
Other liabilities2
 
Equity Method
 
—
 
N/A

 
(25.3
)
Hibbing
 
Investments in ventures1
 
Equity Method
 
23
 
8.3

 
(2.1
)
Other
 
Investments in ventures
 
Equity Method
 
Various
 
33.8

 
33.9

 
 
 
 
 
 
 
 
$
71.5

 
$
108.4

                                         
1 At December 31, 2012 the classification for Hibbing was Other liabilities.
2 At December 31, 2012 our ownership interest percentage for Cockatoo was 50 percent.
Amapá
On December 27, 2012, our board of directors authorized the sale of our 30 percent interest in Amapá. Per this original agreement, together with Anglo American plc, we were to sell our respective interest in a 100 percent sale transaction to a single entity.
On March 28, 2013, an unknown event caused the Santana port shiploader to collapse into the Amazon River, preventing further ship loading by the mine operator, Anglo American plc. In light of the March 28, 2013 collapse of the Santana port shiploader and subsequent evaluation of the effect that this event had on the carrying value of our investment in Amapá as of June 30, 2013, we recorded an impairment charge of $67.6 million in the second quarter of 2013.
On August 28, 2013, we entered into an agreement to sell our 30 percent interest in Amapá to Anglo American plc for nominal cash consideration, plus the right to certain contingent deferred consideration upon the two year anniversary of the closing.  The closing is conditional on obtaining certain regulatory approvals.  The transaction is expected to close in the fourth quarter of 2013.     
Cockatoo Island
On July 31, 2012, we entered into a definitive asset sale agreement with our joint venture partner, HWE Cockatoo Pty Ltd., to sell our beneficial interest in the mining tenements and certain infrastructure of Cockatoo Island to Pluton Resources, which was amended on August 31, 2012. On September 7, 2012, the closing date, Pluton Resources paid a nominal sum of AUD $4.00 and assumed ownership of the assets and responsibility for the environmental rehabilitation obligations and other assumed liabilities not inherently attached to the tenements acquired. The rehabilitation obligations and assumed liabilities that are inherently attached to the tenements were transferred to Pluton Resources upon registration by the Department of Mining and Petroleum denoting Pluton Resources as the tenement holder. Upon final settlement of the sale, which was completed during the second quarter of 2013, we transferred approximately $18.6 million related to the estimated cost of the rehabilitation.

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Table of Contents

Discontinued Operations
On July 10, 2012, we entered into a definitive share and asset sale agreement to sell our 45 percent economic interest in the Sonoma joint venture coal mine located in Queensland, Australia. Upon completion of the transaction on November 12, 2012, we collected approximately AUD $141.0 million in net cash proceeds. The Sonoma operations previously were included in Other within our reportable segments.
Significant Accounting Policies
A detailed description of our significant accounting policies can be found in the audited financial statements for the fiscal year ended December 31, 2012 included in our Annual Report on Form 10-K filed with the SEC. The significant accounting policies requiring updates have been included within the disclosures below.
Other Intangible Assets and Liabilities
Other intangible assets are subject to periodic amortization on a straight-line basis over their estimated useful lives or on a units of production basis as follows:
Intangible Assets
 
Basis
 
Useful Life (years)
Permits - Asia Pacific Iron Ore
 
Units of production
 
Life of mine
Permits - All Other
 
Straight line
 
15 - 40
Utility contracts
 
Straight line
 
5
Leases - North American Coal
 
Units of production
 
Life of mine
Leases - All Other
 
Straight line
 
4.5 - 17.5
Earnings Per Share
We present both basic and diluted earnings per share amounts. Basic earnings per share amounts are calculated by dividing Net Income Attributable to Cliffs Shareholders less any paid or declared but unpaid dividends on our depositary shares by the weighted average number of common shares outstanding during the period presented. Diluted earnings per share amounts are calculated by dividing Net Income Attributable to Cliffs Shareholders by the weighted average number of common shares, common share equivalents under stock plans using the treasury stock method and the number of common shares that would be issued under an assumed conversion of our outstanding depositary shares, each representing a 1/40th interest in a share of our Series A Mandatory Convertible Preferred Stock, Class A, under the if-converted method. Our outstanding depositary shares are convertible into common shares based on the volume weighted average of closing prices of our common stock over the 20 consecutive trading day period ending on the third day immediately preceding the end of the reporting period. Common share equivalents are excluded from EPS computations in the periods in which they have an anti-dilutive effect. See NOTE 18 - EARNINGS PER SHARE for further information.
Recent Accounting Pronouncements
On July 18, 2013, the FASB issued Accounting Standards Update No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 requires the netting of unrecognized tax benefits against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax positions. ASU 2013-11 is effective for interim and annual periods beginning after December 15, 2013. We will adopt ASU 2013-11 in the fourth quarter of 2013 on a prospective basis, which will impact the presentation of our non-current Deferred income taxes and unrecognized tax benefits (within non-current Other liabilities) in the Statements of Unaudited Condensed Consolidated Financial Position.

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In February 2013, the FASB amended the guidance on the presentation of comprehensive income in order to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendment does not change the current requirements for reporting net income or other comprehensive income in financial statements. Rather, it requires the entity to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. The new guidance was applied prospectively for reporting periods beginning after December 15, 2012. We adopted the provisions of guidance required for the period beginning January 1, 2013. Refer to NOTE 16 - SHAREHOLDERS' EQUITY for further information.
NOTE 2 - SEGMENT REPORTING
Our Company’s primary operations are organized and managed according to product category and geographic location: U.S. Iron Ore, Eastern Canadian Iron Ore, Asia Pacific Iron Ore, North American Coal, Latin American Iron Ore, Ferroalloys and our Global Exploration Group. The U.S. Iron Ore segment is comprised of our interests in five U.S. mines that provide iron ore to the integrated steel industry. The Eastern Canadian Iron Ore segment is comprised of two Eastern Canadian mines that primarily provide iron ore to the seaborne market for Asian steel producers. The Asia Pacific Iron Ore segment is located in Western Australia and provides iron ore to the seaborne market for Asian steel producers. The North American Coal segment is comprised of our four metallurgical coal mines and one thermal coal mine that provide metallurgical coal primarily to the integrated steel industry and thermal coal primarily to the energy industry. There are no intersegment revenues.
The Latin American Iron Ore operating segment is comprised of our 30 percent Amapá interest in Brazil. The Ferroalloys operating segment is comprised of our interests in chromite deposits held in Northern Ontario, Canada and the Global Exploration Group is focused on early involvement in exploration activities to identify new projects for future development or projects that add significant value to existing operations. The Latin American Iron Ore, Ferroalloys and Global Exploration Group operating segments do not meet reportable segment disclosure requirements and, therefore, are not reported separately.
We evaluate segment performance based on sales margin, defined as revenues less cost of goods sold, and operating expenses identifiable to each segment. This measure of operating performance is an effective measurement as we focus on reducing production costs throughout the Company.

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The following table presents a summary of our reportable segments for the three and nine months ended September 30, 2013 and 2012, including a reconciliation of segment sales margin to Income from Continuing Operations Before Income Taxes and Equity Loss from Ventures:
 
(In Millions)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2013
 
2012
 
2013
 
2012
Revenues from product sales and services:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Iron Ore
$
782.4

 
51
%
 
$
796.0

 
52
 %
 
$
1,894.2

 
45
%
 
$
1,942.7

 
45
%
Eastern Canadian Iron Ore
284.2

 
18
%
 
253.1

 
16
 %
 
743.4

 
18
%
 
777.8

 
18
%
Asia Pacific Iron Ore
301.7

 
20
%
 
254.2

 
16
 %
 
899.5

 
22
%
 
975.3

 
22
%
North American Coal
178.3

 
11
%
 
241.8

 
16
 %
 
638.5

 
15
%
 
640.9

 
15
%
Other
—

 
—
%
 
(0.2
)
 
—
 %
 
—

 
—
%
 
0.1

 
—
%
Total revenues from product sales and services
$
1,546.6

 
100
%
 
$
1,544.9

 
100
 %
 
$
4,175.6

 
100
%
 
$
4,336.8

 
100
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales margin:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Iron Ore
$
273.5

 
 
 
$
255.9

 
 
 
$
647.1

 
 
 
$
708.9

 
 
Eastern Canadian Iron Ore
(22.0
)
 
 
 
(40.5
)
 
 
 
(52.3
)
 
 
 
(43.0
)
 
 
Asia Pacific Iron Ore
99.0

 
 
 
(15.8
)
 
 
 
255.3

 
 
 
256.1

 
 
North American Coal
(1.8
)
 
 
 
(1.3
)
 
 
 
6.6

 
 
 
3.8

 
 
Other
—

 
 
 
—

 
 
 
(1.9
)
 
 
 
7.8

 
 
Sales margin
348.7

 
 
 
198.3

 
 
 
854.8

 
 
 
933.6

 
 
Other operating expense
(124.7
)
 
 
 
(122.0
)
 
 
 
(200.5
)
 
 
 
(272.3
)
 
 
Other expense
(45.9
)
 
 
 
(43.9
)
 
 
 
(137.4
)
 
 
 
(134.7
)
 
 
Income from continuing operations before income taxes and equity (loss) from ventures
$
178.1

 
 
 
$
32.4

 
 
 
$
516.9

 
 
 
$
526.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation, depletion and amortization:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Iron Ore
$
27.3

 
 
 
$
24.9

 
 
 
$
82.3

 
 
 
$
71.9

 
 
Eastern Canadian Iron Ore
46.8

 
 
 
41.7

 
 
 
130.3

 
 
 
118.2

 
 
Asia Pacific Iron Ore
38.0

 
 
 
40.2

 
 
 
116.1

 
 
 
110.0

 
 
North American Coal
38.8

 
 
 
25.1

 
 
 
99.7

 
 
 
69.5

 
 
Other
2.2

 
 
 
1.0

 
 
 
9.6

 
 
 
12.7

 
 
Total depreciation, depletion and amortization
$
153.1

 
 
 
$
132.9

 
 
 
$
438.0

 
 
 
$
382.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital additions (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Iron Ore
$
15.2

 
 
 
$
19.6

 
 
 
$
39.1

 
 
 
$
82.5

 
 
Eastern Canadian Iron Ore
181.5

 
 
 
285.5

 
 
 
535.3

 
 
 
593.4

 
 
Asia Pacific Iron Ore
2.0

 
 
 
5.8

 
 
 
8.6

 
 
 
132.0

 
 
North American Coal
10.4

 
 
 
33.3

 
 
 
37.2

 
 
 
105.1

 
 
Other
2.2

 
 
 
10.3

 
 
 
4.9

 
 
 
61.0

 
 
Total capital additions
$
211.3

 
 
 
$
354.5

 
 
 
$
625.1

 
 
 
$
974.0

 
 
                                         
(1)    Includes capital lease additions and non-cash accruals. Refer to NOTE 20 - CASH FLOW INFORMATION.

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Table of Contents

A summary of assets by segment is as follows:
 
(In Millions)
 
September 30,
2013
 
December 31, 2012
Assets:
 
 
 
U.S. Iron Ore
$
1,770.6

 
$
1,735.1

Eastern Canadian Iron Ore
7,982.7

 
7,605.1

Asia Pacific Iron Ore
1,188.7

 
1,506.3

North American Coal
1,831.8

 
1,877.8

Other
696.5

 
570.9

Total segment assets
13,470.3

 
13,295.2

Corporate
96.4

 
279.7

Total assets
$
13,566.7

 
$
13,574.9

NOTE 3 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The following table presents the fair value of our derivative instruments and the classification of each in the Statements of Unaudited Condensed Consolidated Financial Position as of September 30, 2013 and December 31, 2012:
 
(In Millions)
 
Derivative Assets
 
Derivative Liabilities
 
September 30, 2013
 
December 31, 2012
 
September 30, 2013
 
December 31, 2012
Derivative
Instrument
Balance Sheet Location
 
Fair
Value
 
Balance
Sheet
Location
 
Fair
Value
 
Balance Sheet
Location
 
Fair
Value
 
Balance Sheet
Location
 
Fair
Value
Derivatives designated as hedging instruments under ASC 815:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-rate Swaps
Derivative assets
 
$
1.7

 
 
 
$
—

 
 
 
$
—

 
 
 
$
—

Foreign Exchange Contracts
Derivative assets
 
4.3

 
Derivative assets
 
16.2

 
Derivative liabilities
 
22.0

 
Derivative liabilities
 
1.9

Total derivatives designated as hedging instruments under ASC 815
 
 
$
6.0

 
 
 
$
16.2

 
 
 
$
22.0

 
 
 
$
1.9

Derivatives not designated as hedging instruments under ASC 815:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Contracts
 
 
$
—

 
 
 
$
—

 
Derivative liabilities
 
$
2.7

 
 
 
$
—

Customer Supply Agreements
Derivative assets
 
62.1

 
Derivative assets
 
58.9

 
 
 
—

 
 
 
—

Provisional Pricing Arrangements
Derivative assets
 
4.6

 
Derivative assets
 
3.5

 
Derivative liabilities
 
11.4

 
Derivative liabilities
 
11.3

Total derivatives not designated as hedging instruments under ASC 815
 
 
$
66.7

 
 
 
$
62.4

 
 
 
$
14.1

 
 
 
$
11.3

Total derivatives
 
 
$
72.7

 
 
 
$
78.6

 
 
 
$
36.1

 
 
 
$
13.2


13
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Derivatives Designated as Hedging Instruments
Cash Flow Hedges
Australian and Canadian Dollar Foreign Exchange Contracts
We are subject to changes in foreign currency exchange rates as a result of our operations in Australia and Canada. With respect to Australia, foreign exchange risk arises from our exposure to fluctuations in foreign currency exchange rates because the functional currency of our Asia Pacific operations is the Australian dollar. Our Asia Pacific operations receive funds in U.S. currency for their iron ore sales. The functional currency of our Canadian operations is the U.S. dollar; however, the production costs for these operations primarily are incurred in the Canadian dollar.
We use foreign currency exchange contracts to hedge our foreign currency exposure for a portion of our U.S. dollar sales receipts in our Australian functional currency entities and our Canadian dollar operating costs. For our Australian operations, U.S. dollars are converted to Australian dollars at the currency exchange rate in effect during the period the transaction occurred. For our Canadian operations, U.S. dollars are converted to Canadian dollars at the exchange rate in effect for the period the operating costs are incurred. The primary objective for the use of these instruments is to reduce exposure to changes in Australian and U.S. currency exchange rates and U.S. and Canadian currency exchange rates, respectively, and to protect against undue adverse movement in these exchange rates. These instruments qualify for hedge accounting treatment, and are tested for effectiveness at inception and at least once each reporting period. If and when any of our hedge contracts are determined not to be highly effective as hedges, the underlying hedged transaction is no longer likely to occur, or the derivative is terminated, hedge accounting is discontinued.
As of September 30, 2013, we had outstanding Australian and Canadian foreign currency exchange contracts with notional amounts of $333.0 million and $453.5 million, respectively, in the form of forward contracts with varying maturity dates ranging from October 2013 to September 2014. This compares with outstanding Australian and Canadian foreign currency exchange contracts with a notional amount of $400.0 million and $630.4 million, respectively, as of December 31, 2012.
Changes in fair value of highly effective hedges are recorded as a component of Accumulated other comprehensive loss in the Statements of Unaudited Condensed Consolidated Financial Position. Any ineffectiveness is recognized immediately in income and, as of September 30, 2013 and 2012, there was no material ineffectiveness recorded for these foreign exchange contracts. Amounts recorded as a component of Accumulated other comprehensive loss are reclassified into earnings in the same period the forecasted transaction affects earnings. Of the amounts remaining in Accumulated other comprehensive loss related to Australian hedge contracts and Canadian hedge contracts, we estimate that losses of $13.4 million and gains of $1.0 million (net of tax), respectively, will be reclassified into earnings within the next 12 months.

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Table of Contents

The following summarizes the effect of our derivatives designated as cash flow hedging instruments, net of tax in Accumulated other comprehensive loss in the Statements of Unaudited Condensed Consolidated Operations for the three and nine months ended September 30, 2013 and 2012:
 
(In Millions)
Derivatives in Cash Flow
Amount of Gain (Loss)
Recognized in OCI on Derivative
 
Location of Gain (Loss)
Reclassified
from Accumulated OCI into Earnings
 
Amount of Gain (Loss)
Reclassified
from Accumulated
OCI into Earnings
Hedging Relationships
(Effective Portion)
 
(Effective Portion)
 
(Effective Portion)
 
Three Months Ended
September 30,
 
 
 
Three Months Ended
September 30,
 
2013
 
2012
 
 
 
2013
 
2012
Australian Dollar Foreign
Exchange Contracts
(hedge designation)
$
2.9

 
$
1.4

 
Product revenues
 
$
(8.9
)
 
$
5.1

Canadian Dollar Foreign Exchange Contracts (hedge designation)
9.2

 
11.3

 
Cost of goods sold and operating expenses
 
(7.3
)
 
1.3

Total
$
12.1

 
$
12.7

 
 
 
$
(16.2
)
 
$
6.4

 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
September 30,
 
 
 
Nine Months Ended
September 30,
 
2013
 
2012
 
 
 
2013
 
2012
Australian Dollar Foreign
Exchange Contracts
(hedge designation)
$
(25.2
)
 
$
7.5

 
Product revenues
 
$
(4.5
)
 
$
7.8

Canadian Dollar Foreign Exchange Contracts (hedge designation)
(9.9
)
 
6.2

 
Cost of goods sold and operating expenses
 
(7.5
)
 
1.6

 
$
(35.1
)
 
$
13.7

 
 
 
$
(12.0
)
 
$
9.4

Fair Value Hedges
Interest Rate Hedges
Interest rate risk is managed using a portfolio of variable- and fixed-rate debt composed of short- and long-term instruments, such as U.S. treasury lock agreements and interest rate swaps. From time to time, these instruments, which are derivative instruments, are entered into to facilitate the maintenance of the desired ratio of variable- to fixed-rate debt. These derivative instruments, with a notional amount of $250.0 million, are designated and qualify as fair value hedges as of September 30, 2013. These instruments did not have a material impact on our financial statements for the year ended December 31, 2012.

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Table of Contents

For derivative instruments that are designated and qualify as fair-value hedges, the gain or loss on the hedge instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current net income. We include the gain or loss on the derivative instrument and the offsetting loss or gain on the hedged item in Other non-operating income (expense). The net gain or loss recognized in Other non-operating income (expense) for the three and nine months ended September 30, 2013 and 2012 were as follows:
(In Millions)
Derivatives in Fair Value Hedging Relationships
Location of Gain Recognized in
Income on Derivative
Net Gain Recognized in Income on Derivative
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2013
 
2012
 
2013
 
2012
Interest Rate Swaps
Other non-operating income (expense)
$
0.1

 
$
—

 
$
0.1

 
$
—

Derivatives Not Designated as Hedging Instruments
Customer Supply Agreements
Most of our U.S. Iron Ore long-term supply agreements are comprised of a base price with annual price adjustment factors, some of which are subject to annual price collars in order to limit the percentage increase or decrease in prices for our iron ore pellets during any given year. The base price is the primary component of the purchase price for each contract. The inflation-indexed price adjustment factors are integral to the iron ore supply contracts and vary based on the agreement, but typically include adjustments based upon changes in the Platts 62 percent Fe market rate and/or international pellet prices and changes in specified Producers Price Indices, including those for all commodities, industrial commodities, energy and steel. The pricing adjustments generally operate in the same manner, with each factor typically comprising a portion of the price adjustment, although the weighting of each factor varies based upon the specific terms of each agreement. In most cases, these adjustment factors have not been finalized at the time our product is sold. In these cases, we historically have estimated the adjustment factors at each reporting period based upon the best third-party information available. The estimates are then adjusted to actual when the information has been finalized. The price adjustment factors have been evaluated to determine if they contain embedded derivatives. The price adjustment factors share the same economic characteristics and risks as the host contract and are integral to the host contract as inflation adjustments; accordingly, they have not been separately valued as derivative instruments.
Certain supply agreements with one U.S. Iron Ore customer provide for supplemental revenue or refunds to the customer based on the customer’s average annual steel pricing at the time the product is consumed in the customer’s blast furnace. The supplemental pricing is characterized as a freestanding derivative and is required to be accounted for separately once the product is shipped. The derivative instrument, which is finalized based on a future price, is adjusted to fair value as a revenue adjustment each reporting period until the pellets are consumed and the amounts are settled. We recognized $53.9 million and $113.4 million as Product revenues in the Statements of Unaudited Condensed Consolidated Operations for the three and nine months ended September 30, 2013, respectively, related to the supplemental payments. This compares with Product revenues of $49.8 million and $131.8 million for the comparable respective periods in 2012. Derivative assets, representing the fair value of the pricing factors, were $62.1 million and $58.9 million in the September 30, 2013 and December 31, 2012 Statements of Unaudited Condensed Consolidated Financial Position, respectively.
Provisional Pricing Arrangements
Certain of our U.S. Iron Ore, Eastern Canadian Iron Ore and Asia Pacific Iron Ore customer supply agreements specify provisional price calculations, where the pricing mechanisms generally are based on

16
Table of Contents

market pricing, with the final revenue rate to be based on market inputs at a specified point in time in the future, per the terms of the supply agreements. The difference between the provisionally agreed-upon price and the estimated final revenue rate is characterized as a freestanding derivative and is required to be accounted for separately once the provisional revenue has been recognized. The derivative instrument is adjusted to fair value through Product revenues each reporting period based upon current market data and forward-looking estimates provided by management until the final revenue rate is determined. At September 30, 2013 and December 31, 2012, we recorded $4.6 million and $3.5 million, respectively, as Derivative assets and $11.4 million and $11.3 million, respectively, as Derivative liabilities in the Statements of Unaudited Condensed Consolidated Financial Position related to our estimate of final revenue rate with our U.S. Iron Ore, Eastern Canadian Iron Ore and Asia Pacific Iron Ore customers at September 30, 2013 and related to our U.S. Iron Ore and Eastern Canadian Iron Ore customers at December 31, 2012. These amounts represent the difference between the provisional price agreed upon with our customers based on the supply agreement terms and our estimate of the final revenue rate based on the price calculations established in the supply agreements. As a result, we recognized a net $24.3 million increase and a net $6.8 million decrease in Product revenues in the Statements of Unaudited Condensed Consolidated Operations for the three and nine months ended September 30, 2013, respectively, related to these arrangements. This compares with a net $8.1 million decrease and a net $10.3 million decrease in Product revenues for the comparable respective periods in 2012.
The following summarizes the effect of our derivatives that are not designated as hedging instruments in the Statements of Unaudited Condensed Consolidated Operations for the three and nine months ended September 30, 2013 and 2012:
(In Millions)
Derivatives Not Designated as Hedging Instruments
Location of Gain (Loss) Recognized in
Income on Derivative
Amount of Gain/(Loss) Recognized in Income on Derivative
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2013
 
2012
 
2013
 
2012
Foreign Exchange Contracts
Other income (expense)
$
—

 
$
—

 
$
—

 
$
0.3

Foreign Exchange Contracts
Income (Loss) from Discontinued Operations, net of tax
—

 
1.1

 
—

 
1.1

Commodity Contracts
Other non-operating income (expense)
(2.7
)
 
—

 
(2.7
)
 
—

Customer Supply Agreements
Product revenues
53.9

 
49.8

 
113.4

 
131.8

Provisional Pricing Arrangements
Product revenues
24.3

 
(10.3
)
 
(6.8
)
 
(10.3
)
Total
 
$
75.5

 
$
40.6

 
$
103.9

 
$
122.9

Refer to NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS for additional information.

17

NOTE 4 - INVENTORIES
The following table presents the detail of our Inventories in the Statements of Unaudited Condensed Consolidated Financial Position as of September 30, 2013 and December 31, 2012:
 
(In Millions)
 
September 30, 2013
 
December 31, 2012
Segment
Finished Goods
 
Work-in Process
 
Total Inventory
 
Finished Goods
 
Work-in
Process
 
Total
Inventory
U.S. Iron Ore
$
160.4

 
$
20.3

 
$
180.7

 
$
147.2

 
$
22.9

 
$
170.1

Eastern Canadian Iron Ore
54.2

 
36.2

 
90.4

 
62.6

 
44.2

 
106.8

Asia Pacific Iron Ore
54.0

 
34.7

 
88.7

 
36.7

 
37.2

 
73.9

North American Coal
55.6

 
23.0

 
78.6

 
36.7

 
49.0

 
85.7

Total
$
324.2

 
$
114.2

 
$
438.4

 
$
283.2

 
$
153.3

 
$
436.5

We recorded a lower-of-cost-or-market inventory charge during the third quarter of 2013 of $5.9 million relating to concentrate inventory primarily driven by extended maintenance shutdowns that resulted in higher costs and reduced fixed-cost leverage. We recorded these charges in Cost of goods sold and operating expenses in the Statements of Unaudited Condensed Consolidated Operations for our Eastern Canadian Iron Ore operations. For the nine months ended September 30, 2013, the lower-of-cost-or-market inventory charge recorded was $10.6 million concentrate inventory. During the first half of 2013, the Wabush concentrate inventory charge was caused by higher costs as a result of transitioning into concentrate-only production and the forest fire that temporarily idled the mine in June.
Additionally, as a result of the idling of our Wabush pellet plant during the second quarter of 2013, we recorded a lower-of-cost-or-market inventory charge of $11.1 million relating to Wabush pellets that are contractually committed tons, and we recorded an unsaleable inventory impairment charge of $10.6 million relating to Wabush pellets. Both of these charges were recorded in Cost of goods sold and operating expenses in the second quarter of 2013 and included in the Statements of Unaudited Condensed Consolidated Operations for the nine months ended September 30, 2013 for our Eastern Canadian Iron Ore operations. No lower-of-cost-or-market inventory adjustments were recorded for the three and nine months ended September 30, 2012 within the Eastern Canadian Iron Ore operating segment results.
We recorded lower-of-cost-or-market inventory charges of $2.6 million and $5.3 million in Cost of goods sold and operating expenses in the Statements of Unaudited Condensed Consolidated Operations for the three and nine months ended September 30, 2013, respectively, for our North American Coal operations. These charges were a result of market declines and costs associated with operational and geological issues. For the three and nine months ended September 30, 2012, we recorded lower-of-cost-or-market inventory charges of $8.0 million and $17.9 million, respectively, for our North American Coal operations due to market prices for coal.


18
Table of Contents

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
The following table indicates the value of each of the major classes of our consolidated depreciable assets as of September 30, 2013 and December 31, 2012:
 
(In Millions)
 
September 30,
2013
 
December 31, 2012
Land rights and mineral rights
$
7,826.5

 
$
7,920.8

Office and information technology
119.3

 
92.4

Buildings
214.0

 
162.0

Mining equipment
1,554.7

 
1,290.7

Processing equipment
2,172.8

 
1,937.4

Railroad equipment
222.3

 
240.8

Electric power facilities
82.9

 
58.7

Port facilities
103.8

 
114.3

Interest capitalized during construction
25.5

 
20.8

Land improvements
63.0

 
43.9

Other
91.8

 
39.0

Construction in progress
1,049.2

 
1,123.9

 
13,525.8

 
13,044.7

Allowance for depreciation and depletion
(2,171.0
)
 
(1,837.4
)
 
$
11,354.8

 
$
11,207.3

We recorded depreciation and depletion expense of $148.3 million and $423.1 million in the Statements of Unaudited Condensed Consolidated Operations for the three and nine months ended September 30, 2013, respectively. This compares with depreciation and depletion expense of $127.7 million and $364.9 million for the three and nine months ended September 30, 2012, respectively.
The accumulated amount of capitalized interest included within construction in progress at September 30, 2013 is $30.1 million, of which $15.3 million was capitalized during 2013. At December 31, 2012, $17.1 million of capitalized interest was included within construction in progress, of which $15.4 million was capitalized during 2012.
NOTE 6 - DISCONTINUED OPERATIONS
The table below sets forth selected financial information related to operating results of our business classified as discontinued operations. While the reclassification of revenues and expenses related to discontinued operations for prior periods has no impact upon previously reported net income, the Statements of Unaudited Condensed Consolidated Operations present the revenues and expenses that were reclassified from the specified line items to discontinued operations. During the fourth quarter of 2012, we sold our 45 percent economic interest in Sonoma. The Sonoma operations previously were included in Other within our reportable segments.

19
Table of Contents

The following table presents detail of our operations related to our Sonoma operations in the Statements of Unaudited Condensed Consolidated Operations:
 
(In Millions)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
REVENUES FROM PRODUCT SALES AND SERVICES
 
 
 
 
 
 
 
Product
$
—

 
$
42.6

 
$
—

 
$
141.6

 
 
 
 
 
 
 
 
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, net of tax
$
2.0

 
$
(2.7
)
 
$
2.0

 
$
5.2

Income (Loss) from Discontinued Operations, net of tax during the three and nine months ended September 30, 2013 relates to additional income tax benefit resulting from the actual tax gain from the sale of Sonoma as included on the 2012 tax return, which was filed during the three months ended September 30, 2013.
We recorded a loss from discontinued operations of $2.7 million, net of $1.2 million in income tax credits, and income from discontinued operations of $5.2 million, net of $2.1 million in tax expense in Income (Loss) from Discontinued Operations, net of tax for the three and nine months ended September 30, 2012, respectively, related to our previously owned interest in the Sonoma operations.
NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS AND LIABILITIES
Goodwill
The following table summarizes changes in the carrying amount of goodwill allocated by operating segment for the nine months ended September 30, 2013 and the year ended December 31, 2012:
 
(In Millions)
 
September 30, 2013
 
December 31, 2012
 
U.S. Iron Ore
 
Eastern Canadian Iron Ore
 
Asia Pacific
Iron Ore
 
North American Coal
 
Other
 
Total
 
U.S. Iron Ore
 
Eastern
Canadian Iron Ore
 
Asia Pacific Iron Ore
 
North American Coal
 
Other
 
Total
Beginning Balance
$
2.0

 
$
—

 
$
84.5

 
$
—

 
$
80.9

 
$
167.4

 
$
2.0

 
$
986.2

 
$
83.0

 
$
—

 
$
80.9

 
$
1,152.1

Arising in business combinations
—

 
—

 
—

 
—

 
—

 
—

 
—

 
13.8

 
—

 
—

 
—

 
13.8

Impairment
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,000.0
)
 
—

 
—

 
—

 
(1,000.0
)
Impact of foreign currency translation
—

 
—

 
(8.8
)
 
—

 
—

 
(8.8
)
 
—

 
—

 
1.5

 
—

 
—

 
1.5

Ending Balance
$
2.0

 
$
—

 
$
75.7

 
$
—

 
$
80.9

 
$
158.6

 
$
2.0

 
$
—

 
$
84.5

 
$
—

 
$
80.9

 
$
167.4

Accumulated Goodwill Impairment Loss
$
—

 
$
(1,000.0
)
 
$
—

 
$
(27.8
)
 
$
—

 
$
(1,027.8
)
 
$
—

 
$
(1,000.0
)
 
$
—

 
$
(27.8
)
 
$
—

 
$
(1,027.8
)

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Table of Contents

Other Intangible Assets and Liabilities
Following is a summary of intangible assets and liabilities as of September 30, 2013 and December 31, 2012:
 
 
 
(In Millions)
 
 
 
September 30, 2013
 
December 31, 2012
 
Classification
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Definite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Permits
Intangible assets, net
 
$
130.3

 
$
(35.7
)
 
$
94.6

 
$
136.1

 
$
(31.7
)
 
$
104.4

Utility contracts
Intangible assets, net
 
54.7

 
(40.8
)
 
13.9

 
54.7

 
(32.4
)
 
22.3

Leases
Intangible assets, net
 
5.7

 
(3.4
)
 
2.3

 
5.7

 
(3.4
)
 
2.3

Total intangible assets
 
 
$
190.7

 
$
(79.9
)
 
$
110.8

 
$
196.5

 
$
(67.5
)
 
$
129.0

Below-market sales contracts
Other current liabilities
 
$
(46.0
)
 
$
13.3

 
$
(32.7
)
 
$
(46.0
)
 
$
—

 
$
(46.0
)
Below-market sales contracts
Other liabilities
 
(250.7
)
 
199.6

 
(51.1
)
 
(250.7
)
 
181.6

 
(69.1
)
Total below-market sales contracts
 
 
$
(296.7
)
 
$
212.9

 
$
(83.8
)
 
$
(296.7
)
 
$
181.6

 
$
(115.1
)
Amortization expense relating to intangible assets was $4.8 million and $14.9 million for the three and nine months ended September 30, 2013, respectively, and is recognized in Cost of goods sold and operating expenses in the Statements of Unaudited Condensed Consolidated Operations. Amortization expense relating to intangible assets was $4.8 million and $14.1 million for the comparable respective periods in 2012. The estimated amortization expense relating to intangible assets for each of the five succeeding years is as follows:

(In Millions)

Amount
Year Ending December 31

2013 (remaining three months)
$
6.1

2014
19.3

2015
8.5

2016
8.4

2017
8.4

2018
7.8

Total
$
58.5

The below-market sales contracts are classified as a liability and recognized over the term of the underlying contracts, which have remaining lives ranging from one to four years. For the three and nine months ended September 30, 2013, we recognized $14.7 million and $31.3 million, respectively, in Product revenues related to the below-market sales contracts, compared with $14.7 million and $31.3 million for the three and nine months ended September 30, 2012, respectively. The following amounts are estimated to be recognized in Product revenues for the remainder of this year and each of the three succeeding fiscal years:
 
(In Millions)
 
Amount
Year Ending December 31
 
2013 (remaining three months)
$
14.7

2014
23.0

2015
23.0

2016
23.1

Total
$
83.8


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NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following represents the assets and liabilities of the Company measured at fair value at September 30, 2013 and December 31, 2012:
 
(In Millions)
 
September 30, 2013
Description
Quoted Prices in Active
Markets for Identical Assets/Liabilities
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Total
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
192.0

 
$
—

 
$
—

 
$
192.0

Derivative assets
—

 
1.7

 
66.7

 
68.4

Marketable securities
26.7

 
—

 
—

 
26.7

Foreign exchange contracts
—

 
4.3

 
—

 
4.3

Total
$
218.7

 
$
6.0

 
$
66.7

 
$
291.4

Liabilities:

 

 

 

Derivative liabilities
$
—

 
$
2.7

 
$
11.4

 
$
14.1

Foreign exchange contracts
—

 
22.0